Today’s Problem:
If you had pitched your PM a GLW Short into today’s EPS based on the company spending willy-nilly, guiding to rising tax rates, and slowing the capital return program, then you nailed it. Trifecta, you got all three.
But, that’s all in the stock now. What comes next?
Tomorrow’s Opportunity:
Display outlook is better than expected. Our data suggest Display will continue to surprise from here.
Optical growth is solid (at 10% for the year excluding 3M). Investments in 2H17/1H18 weigh on GM% and then the pressure recedes in 2H18. The negatives are in, positives will continue to accrue.
P+L gets right sized in 2H18 when GM%s come back up and Opex to Sales normalizes.
And we get better FCF in 2019 as excess OPEX and Capex investments in 2017-2018 recede.
Conclusion:
If you hate GLW because of its exposure to TV, you are not going to make money in 2018. If you think Optical is long in the tooth, you also won't get paid.
If you are bearish on the Apple supply chain, we suspect there are better ways to harvest downside than by shorting GG which has underlying product and technology adoption ahead and is not a good unit corollary over time.
We do agree that everything other than revenue is messy: GM% down, OPEX up, Tax up, and buyback slowing. All true. Ultimately for the stock, we think direction of revenue matters more and revenue growth will continue to accelerate.
